Asked by Carmen LeMaster on Jun 30, 2024
Verified
The sustainable growth rate of a firm is best described as the:
A) Minimum growth rate achievable if the firm does not pay out any cash dividends.
B) Minimum growth rate achievable if the firm maintains a constant equity multiplier.
C) Maximum growth rate achievable without external financing of any kind.
D) Maximum growth rate achievable without using any external equity financing, and while maintaining a constant debt-equity ratio.
E) Maximum growth rate achievable without any limits on the level of debt financing.
Sustainable Growth Rate
The maximum rate at which a company can grow its revenues and profits while maintaining a consistent return on equity and without raising additional equity financing.
External Financing
Funds raised from outside the business, e.g., through borrowing or issuing equity.
Debt-equity Ratio
The ratio reflecting on the strategic use of shareholders' equity and debt for the purpose of financing assets.
- Recognize the determinants of sustainable and internal growth rates.
Verified Answer
Learning Objectives
- Recognize the determinants of sustainable and internal growth rates.
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